Call Market – is an exchange or a place where exchange is made on a specific period of time and not happen constantly. All transactions – securities buy, sell – are made at one time hence it is possible to set one price for above. Call markets most often occur if we are dealing with a few traders and a few traded transactions. The traders are never sure what the price are going to be “called”. It is concluded based on orders reported by the buyers and sellers.
An example of Call market
Let's assume that we have below transactions in order book.
- Buy 1500 shares at 10.00 $ Buy700 shares at $12.00 Buy 750 shares at 11.00 $. Sell 750 shares 11.50 $ Sell 700 shares 12.50 $ Sell 1500 shares at 10.00 $.
The price set for all transaction would be 10.00 $, and the price would be called a call price, as the ideal for the moment. It does not matter that some parties are willing to pay 12.00 $ and others are willing to get ride of some of theirs assets for more than 10.00 $.
Call Market vs Continuous Trading Market
On call market All investors are called to be present at the same place at the same time. This time on a market is called trading session. Those circumstances make market very fluid and. When “call time” passess beyond the market changes all around and it become immovable. Call market can work in rotation as well. Operating in this model all transaction may be called in one turn. And if there are “turns” – so called – sessions, as many sessions as possible will be appealed. Call market is not only used for a small markets but also in some countries governments sell for example bonds or notes. This model can be used also for securities which are not very active (for example Euronext Paris Bourse). On call markets trades are being done as orders. There is one price set based on buyers and sellers powers. All orders are being written down and based on it there is one price chosen. This decision is also made to maximize the opportunity from transactions. Within Continuous Trading Market trades can be constantly trade as market is open all the time. Whenever seller or buyer wants to make a deal, at anytime the opposite will be matched (seller – buyer). The most popular continuous trading markets are currency exchange markets, stock exchange or derivatives. There are some good side and a bad ones in both type of markets. When it comes to advantages – in call market the biggest one is the market liquidity because all clients are present at the market at the same time and at the same place. What advantage the continuous market has? The possibility to buy or sell at any time the client is interested in transaction, there is no limit.
- Comerton - Forde C., Rydge J. (2006). The Influence of Call Auction Algorithm Rules on Market Efficiency Finance Discipline, School of Business, University of Sydney, p. 4-10
- Economides N., Schwartz R. A. (1995). Electronic Call Market Trading, "The Journal of Portfolio Management", volume 21, number 3, p. 10-17
- Kehr C. H., Krahnen J. P., Theissen E., (2001). The Anatomy of a Call Market1 "Journal of Financial Intermediation", number 10, p. 249–270
- Wah E., Hurd D. R., Wellman M. P. (2015). Strategic Market Choice: Frequent Call Markets vs. Continuous Double Auctions for Fast and Slow Traders "Computer Science & Engineering", volume 26, number 10, p. 2-10
- Wah E., Hurd D. R., Wellman M. P. (2015). Strategic Market Choice: Frequent Call Markets vs. Continuous Double Auctions for Fast and Slow Traders p. 2-10
Author: Ewelina Kruszewska